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Counting the cost

As the retail distribution review edges closer, the debate over low-cost investing has ballooned among providers and advisers. Evidence of this can be seen in the flurry of multi-manager launches aiming to deliver the benefits of diversification and strategic asset allocation via a fund of funds or multi-asset and low-cost investment approach.

It seems generally accepted that more advisers after the RDR will leave the asset allocation of client portfolios to others, be it via multi-manager funds or discretionary wealth managers.

What seems clear is the multi-manager route for many intermediaries is more in keeping with their strategy and if this can be delivered at lower costs to their clients, this can only strengthen their resolve in this approach.

However, shifting day-to-day investment decisions to a third party leaves advisers with the task of maintaining their client relationships. Delegation is not abdication and advisers who opt for this approach will still need to do their homework to ensure they are selecting the right multi-manager product for their clients.

Trust is crucial. After all, if advisers outsource a client’s asset allocation to another wealth manager or multi-manager proposition, who does the client blame if things go awry? The adviser will be first in the firing line.

Over the last two decades there has been an explosion of investment vehicles, offering investors ways in to every conceivable asset class, region and country. In the days when there was not such a plethora of funds at every adviser’s disposal, they had the inclination and the time to tackle client asset allocation.

The only option was equity or bonds and the typical decision was whether one should put 20 per cent in Europe or only 15 per cent. It was an investment universe that was both manageable and accessible and advisers had the time to be an expert. It is arguable whether this case remains.

Many advisers I have spoken with over recent years say they believe they can offer a better solution than that of the fund management and discretionary wealth managers – after all, they know their clients best. However, a rapidly growing number of intermediaries are looking past the RDR and have decided their new business model values the advice – the holistic financial plan – over the buying and selling of funds.

With cost becoming a major driver for many potential clients, both now and after the RDR, any wealth solution is going to have to be a strong proposition to justify fees – be it via a low-cost one-stop multi-asset, fund of fund approach or via a discretionary offering.

I anticipate that the pricing differential between investment management services and multi-manager solutions will also change to reflect the nature of individual products.

Some commentators foresee investors served by low-cost passive core portfolios while using traditional higher quality active funds and other investments that truly add value as their satellite holdings. Time will tell if the new world order after the RDR echoes this sentiment.

Andy Clark is head of wholesale, EMEA, HSBC Global Asset Management

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